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Bay Side Recycling Co., LLC v. SKB Envtl., Inc.

United States District Court, D. Minnesota

December 1, 2014

Bay Side Recycling Company, LLC and AMG Alliance LLC, Plaintiffs,
v.
SKB Environmental, Inc., Gem-Ash Processing LLC, 4G Group, LLC, Christopher J. Goodwald, Matthew Goodwald and Jerry Goodwald, Defendants

Laura N. Maupin and Erin E. Westbrook, Barnes & Thornburg LLP, Minneapolis, MN, for Plaintiffs.

Theresa M. Bevilacqua, Dorsey & Whitney LLP, Minneapolis, MN, for Defendant SKB Environmental, Inc.

Jonathan P. Norrie, Mark R. Bradford, and Christine E. Hinrichs, Bassford Remele, P.A., Minneapolis, MN, for Defendants Gem-Ash Processing, LLC, 4G Group, LLC, Christopher J. Goodwald, and Jerry Goodwald.

Douglas P. Seaton and Martin D. Kappenman, Seaton, Peters & Revnew, P.A., Minneapolis, MN, for Defendant Matthew Goodwald.

MEMORANDUM OPINION AND ORDER

SUSAN RICHARD NELSON, United States District Judge.

I. INTRODUCTION

This matter is before the Court on Plaintiffs Bay Side Recycling Company, LLC's and AMG Alliance LLC's Motion for Expedited Discovery [Doc. No. 10] and Motion for Temporary Restraining Order and Preliminary Injunction [Doc. No. 13]. For the reasons set forth below, the Court denies the Motion for Expedited Discovery as moot and denies the Motion for Temporary Restraining Order and Preliminary Injunction.[1]

II. BACKGROUND

A. The Parties

Plaintiffs Bay Side Recycling Company, LLC (" Bay Side") and AMG Alliance LLC (" AMG") are involved in the scrap metal recycling business. (Zweigbaum Decl. [Doc. No. 17] ¶ 2.) AMG is a joint venture between AMG Resources Corporation and Alliance Steel Service Company (" Alliance"), and Bay Side is a Duluth, Minnesota-based affiliate of AMG. (Id.) Plaintiffs buy, process, and sell both ferrous (iron-bearing) and non-ferrous (non-iron-bearing) metals. (Id. ¶ 3.)

Defendant SKB Environmental, Inc. (" SKB") is in the waste management industry and owns and operates a waste disposal service and landfill in Rosemount, Minnesota. (Domke Decl. [Doc. No. 27] ¶ 2.) Defendants Christopher J. Goodwald (" CJ") and Matthew Goodwald (" Matthew") are former employees of Bay Side. (Zweigbaum Decl. ¶ 5.) Defendant Jerry Goodwald (" Jerry")[2] is CJ's and Matthew's father and, until October 31, 2014, was a regional vice president at Gerdau Long Steel NA (" Gerdau"). (See J. Goodwald Decl. [Doc. No. 30] ¶ ¶ 2, 11, 18.) Jerry has over thirty years of experience in the steel industry. (Id. ¶ 1.) Jerry and his wife, Lorraine, along with CJ and Matthew, formed Defendant 4G Group, LLC (" 4G Group") in March 2012. (See Maupin Decl. [Doc. No. 16], Ex. 1; Rogers Decl. [Doc. No. 18] ¶ 8.) Jerry is the manager. (Maupin Decl., Ex. 1.) In November 2013, Jerry, Lorraine, CJ, and a company called 4G2, LLC (jointly owned by Jerry, Lorraine, and CJ) formed Defendant Gem-Ash Processing, LLC (" Gem-Ash"). (Maupin Decl., Ex. 2; J. Goodwald Decl. ¶ 19.)

B. The Metals Contracts

SKB and Hennepin County are parties to two agreements relevant to this lawsuit. The first is a contract governing the transportation and disposal of ash from Hennepin County's Hennepin Energy Resource Co. (" HERC") facility (the " Hennepin County Ash Contract"). (See Domke Decl. ¶ 5 & Ex. 1.) The ash that remains after the HERC facility incinerates waste contains recyclable metals, along with non-recyclable materials. (Id. ¶ 7.) Under the Hennepin County Ash Contract, Hennepin County retains the right to extract the metals but may, at its option, leave the metals in the ash for SKB to extract and sell for SKB's own benefit. ( See id . ¶ 7 & Ex. 1 § II.11.) Hennepin County historically has extracted ferrous metals (which are sometimes mixed with non-ferrous metals due to the heat from incineration) through the use of magnets. (See id. ¶ ¶ 7-8.)

The second agreement, entered into in 2004, governs the terms under which SKB transports, processes, and sells the ferrous metals recovered from the ash at the HERC facility (the " Hennepin County Metals Contract"). (See Maupin Decl., Ex. 3, at 1-2.) Pursuant to the Hennepin County Metals Contract, SKB was required to solicit competitive bids for the sale of the processed ferrous metals at least once every two years. (See id., Ex. 3, at Amendment No. 1.) Revenues from the sale were divided, with 75% (net of certain fees) remitted to Hennepin County and 25% retained by SKB. (Id., Ex. 3, at 10.) Per its terms, the Hennepin County Metals Contract expired on October 31, 2013, subject to two successive, one-year renewal periods that would take effect automatically unless one party gave written consent of its intention not to renew. (Id., Ex. 3, at Amendment 2.)

AMG first won the competitive bid required by the Hennepin County Metals Contract in October 2010. (See Rogers Decl. ¶ 2; Domke Decl. ¶ 19 & Ex. 2.) In 2011, AMG was the only bidder, and its bid was again accepted by SKB. (Domke Decl. ¶ 21 & Ex. 3.) The most recent contract governing the relationship between SKB and AMG (the " AMG Contract"), dated October 28, 2011, was amended on June 19, 2012, to extend the term past one year. (See Rogers Decl., Ex. 1, at 5.) Between that time and the AMG Contract's new expiration date of November 1, 2014, AMG was not required to compete in a bidding process. (Id.; see Domke Decl. ¶ ¶ 24-25.) However, the AMG Contract did require that SKB--30 days prior to the end of the term--solicit competitive bids for the next term. (Rogers Decl., Ex. 1, at 2.) SKB has never had a contract for metals with Bay Side. (Domke Decl. ¶ 28.)

C. CJ and Matthew Goodwald's Employment with Bay Side

Bay Side, AMG's affiliate, hired CJ Goodwald in 2009 as a yard engineer. (Zweigbaum Decl. ¶ 6.) During his employment, CJ received training in the scrap metal business and was eventually promoted to General Manager. (Id. ¶ 7.) According to Plaintiffs, as General Manager, CJ was a " highly trusted employee" who had access to information regarding Plaintiffs' customers, suppliers, vendors, pricing, and profit and loss margins. (Id. ¶ ¶ 8-9.) In particular, Plaintiffs assert that CJ was responsible for managing Bay Side's relationship with SKB and had access to details regarding AMG's purchasing, handling, processing, and sale of scrap metal. (Id.) Plaintiffs also assert that CJ had access to Bay Side's information regarding the difficulty of selecting an eddy current[3] manufacturer and housing the machine, as well as the process of configuring the eddy current. (Rogers Decl. ¶ 5.)

Contrary to Plaintiffs' assertions, SKB contends that CJ was not responsible for managing SKB's relationship with Bay Side. (Domke Decl. ¶ 36.) Similarly, CJ states that his interaction with SKB was limited to working with SKB to transport and dispose of Bay Side's waste. (C. Goodwald Decl. [Doc. No. 31] ¶ ¶ 4-5.) He claims that he did not have any involvement in negotiations between SKB and AMG, has never seen the AMG Contract and does not know its terms, and has never reviewed an AMG customer or pricing list. (See id. ¶ ¶ 6-9.) Rather, CJ contends that his job was to minimize the costs, and maximize the revenue, associated with purchasing scrap and re-selling the processed metals. (Id. ¶ 3.) CJ resigned from Bay Side in January 2014. (Zweigbaum Decl. ¶ 11.)

Bay Side hired Matthew Goodwald in 2010 as an account executive. (See Rogers Decl. ¶ 6 & Ex. 2; M. Goodwald Decl. [Doc. No. 23] ¶ 15.) According to Matthew, when Thomas Rogers, who is part-owner of Alliance (which owns Bay Side and is a 50%-owner of AMG), offered Matthew the position, Mr. Rogers told Matthew that he would receive a salary of $65, 000 plus moving expenses but did not inform Matthew that he would be required to sign a non-competition agreement. (See Rogers Decl. ¶ 1; M. Goodwald Decl. ¶ ¶ 4, 6-7.) Rather, the first time that Matthew recalls seeing or discussing the Employment Agreement was after he accepted the position. (See M. Goodwald Decl. ¶ ¶ 7-12.) Matthew contends that he was first presented with the Employment Agreement on October 18, 2010--his first day of work. (Id. ¶ 11.) That is also the day that he signed the Agreement. (Id.) However, Michael Zweigbaum, who is also a part-owner of Alliance, asserts that he provided Matthew with a copy of the Employment Agreement on or around October 8, 2010--the day that Matthew was first offered employment with Bay Side. (Zweigbaum Second Supplemental Decl. [Doc. No. 37] ¶ ¶ 1, 4.) Mr. Zweigbaum points to a letter dated October 8 that offers Matthew employment, states that Matthew would be required to enter into a non-competition agreement, and purports to attach a copy of the Employment Agreement. (Id. ¶ 4 & Ex. 20.) Although this letter is dated October 8, Matthew's signature " accepting" the terms of employment is dated October 18. (See id., Ex. 20.)

Pursuant to the Employment Agreement, Matthew agreed to " maintain in strictest confidence" the trade secrets and confidential business information of Plaintiffs during the term of the Agreement. (Rogers Decl., Ex. 2 ¶ 1.) Matthew also agreed not to engage, directly or indirectly, in the following activities during the course of his employment and for one year following termination of his employment:

(a) Own an interest in . .., manage, operate, join, control, lend money or render financial or other assistance to, or participate in or be connected with, as an officer, employee, partner, stockholder, consultant or otherwise, any entity who is engaged in the scrap metal brokerage/dealer business (including ferrous and/or non-ferrous scrap metals) anywhere within the States of Minnesota, Wisconsin, Iowa, and the Dakotas. . .;
(b) Induce, solicit, endeavor to entice or attempt to induce any customer, supplier or other business relation of the Company[4] to cease doing business with the Company, do business with any competitor of the Company, or in any way interfere with the relationship between any such customer, vendor or other business relation and the Company; or
(c) Solicit, endeavor to entice away from the Company, or otherwise interfere with the relationship of the Company, any person who is employed by or otherwise engaged to perform services for the Company (including, but not limited to, any independent sales representatives or organizations), whether for Employee's own account or for the account of any other individual, partnership, firm, corporation, or other business organization.

(Id., Ex. 2 ¶ 2.)

During his employment with Bay Side, Matthew was responsible for the purchase and sale of scrap metal for Bay Side's Northern Region (i.e., Minnesota, Wisconsin, Iowa, North Dakota, and South Dakota). (Id. ¶ 4.) Mr. Rogers asserts that Matthew, too, had access to Plaintiffs' information regarding pricing, margins, suppliers, customers, and handling and processing methods and technologies; AMG's contractual relationship with SKB and methods relating to the purchasing and marketing of scrap metal; and Bay Side's information regarding the difficulty of selecting an eddy current manufacturer and housing the machine, as well as the process of configuring the eddy current. (Id. ¶ 5.) Matthew, on the other hand, states that his job duties were to purchase scrap metal and to call mills for pricing information, and that he did not do business with SKB or have access to or specific knowledge of the contracts at issue in this litigation or to AMG's pricing, customer lists, or financial information. (See M. Goodwald Decl. ¶ ¶ 15, 19, 22, 30.)

Matthew resigned from Bay Side in December 2013. (Rogers Decl. ¶ 7.) He states that he did not take any information with him when he left, has not used any Bay Side information since he left, and has only been employed by companies that work outside of the geographic area of the non-competition agreement or in a different industry. (M. Goodwald Decl. ¶ ¶ 23, 25-26.) He also states that he is not employed by Gem-Ash and has not performed any work for Gem-Ash. (Id. ¶ 27.)

According to Mr. Zweigbaum, Bay Side, Alliance, and AMG regularly require employees in purchasing and sales positions to execute a confidentiality, non-competition, and non-solicitation agreement as a condition of their employment. (Zweigbaum Second Supplemental Decl. ¶ 2.) On the other hand, employees in operational positions typically are not required to enter into such agreements. (Id. ¶ 3.) While Mr. Zweigbaum states that approximately twelve current Bay Side, Alliance, and AMG employees are subject to these agreements, (id. ¶ 2), Matthew asserts that he does not believe that any other Bay Side employees were required to sign non-competition agreements during the time that he worked there, (Supplemental M. Goodwald Decl. [Doc. No. 38] ¶ 5).

D. Defendants' Allegedly Improper Behavior

According to Plaintiffs, Defendants began attempts to solicit business away from Plaintiffs in 2013, when CJ and Matthew were still employed by Bay Side. Plaintiffs' evidence is based primarily on several email communications sent over CJ's and Matthew's Bay Side email accounts. (See Zweigbaum Decl. ¶ 12.) For example, Plaintiffs point to a July 23, 2013 email sent by Rick O'Gara of SKB to CJ and attaching a " draft mutual [nondisclosure agreement]." [5] (Zweigbaum Decl. ¶ 19 & Ex. 5.) Per Mr. O'Gara's request, CJ forwarded the email to Matthew, who then forwarded the email to Jerry.[6] (See id.) Then, on September 13, Alissa Ugro of SKB emailed to CJ a " Mutual Nondisclosure Agreement" between 4G Group, SKB, and SGM. (Id. ¶ 20 & Ex. 6.) The Nondisclosure Agreement is dated July 15, 2013, and it was executed by CJ as " Vice President of 4G Group." (Id., Ex. 6, at 4.) CJ forwarded the email and attachment to Jerry. (Id., Ex. 6, at 1.)

Plaintiffs also discovered an email from Mr. O'Gara to CJ and Matthew in August 2013, in which Mr. O'Gara forwarded a message from a Hennepin County employee regarding a proposal for a University of Minnesota research project regarding " metal recovery from the Hennepin County ash." (Id. ¶ 21 & Ex. 7, at 1.) Apparently, the data from the study could be used to " determine the cost and feasibility of recovering more metal from the HERC ash." (Id., Ex. 7, at 1.) Neither CJ nor Matthew informed Bay Side or AMG of the proposal. (Id. ¶ 22.)

The following month, CJ planned a meeting with Jerry and SGM at " the landfill, " and Jerry planned a conference call regarding " Ash Discussion" with CJ, Matthew, Mr. O'Gara, and John Domke of SKB. (Id. ¶ ¶ 23-24 & Exs. 8-9.) According to Mr. Zweigbaum, there was no business that CJ and Matthew were authorized to conduct on behalf of Bay Side or AMG that involved Jerry, and Matthew had no business reason for meeting with SKB at all. (Id. ¶ 25.) Shortly after these meetings, Jerry sent CJ an email attaching handwritten notes that contained the following statements: " SGM Commitment Equipment, " " Letter of Intent -- Lock SKB to LLC, " " Lock up ASH w/ Hennepin to SKB w/ no charge, " " Invoice 4G Group -- yes, " and " Permits required . . . Equipment, Bldg, other." (Id. ¶ 26 & Ex. 10, at 2.) Bay Side and AMG were not aware of any business endeavor related to these notes. (Id. ¶ 27.)

On September 16, 2013, Matthew sent an email to Jerry asking, " Will it look like this . . . . Gem-ASH[?]" (Id. ¶ 37 & Ex. 17.) In response, Jerry stated, " I like the emphasis -- is that how you want it to look?" (Id.) Then, on September 17, Mr. Domke emailed Jerry and attached a letter of intent between SKB and 4G Group dated October 1, 2013 (the " Letter of Intent"), which stated the following:

SKB ENVIRONMENTAL, INC., a Minnesota corporation (" SKB"), is pleased to submit this letter of intent relating to the proposal of 4G GROUP L.L.C., a Minnesota limited liability company (" 4G"), to enter into a definitive agreement with SKB to site, construct and operate a ferrous metal extraction facility at SKB's Rosemount industrial waste landfill (the " Proposed Transaction"). . . .
4G contemplates the expenditure of significant time and money in connection with analyzing the feasibility of the Proposed Transaction. Accordingly, by SKB's execution of this letter, SKB agrees that, for a period of two hundred seventy-three (273) days after execution of this letter, SKB will not negotiate nor enter into an agreement with any other party with ...

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